Japan's JFE takes new tack to tame volatile coking coal prices

JFE Holdings

28/12/2023 23:00

(Repeats story from overnight, no changes to text)

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      JFE says lack of spot trades hurts price benchmark
    

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      Drop in spot deals due to weaker Australian output - S&P
    

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      JFE buys up to 80,000 tons coal on spot market quarterly
    

  
    By Yuka Obayashi
       TOKYO, Dec 28 (Reuters) - JFE Steel, Japan's No.2
steelmaker, plans to buy more coking coal from the spot market
to boost activity and make prices more transparent for the
industry's price benchmark setter, aiming to stabilise a rocky
market, a senior official said.
    Spot trading for the key steel-making ingredient slumped and
and prices turned volatile after the world's top consumer China
shut out coking coal from top producer Australia in 2020 and
switched to less traceable, cheaper supplies from Russia and
Mongolia.
    JFE senior vice president Hiroshi Daimon said the lack of
spot deals had helped drive up coking coal prices and put them
out of line with the other key steelmaking ingredient, iron ore,
pointing to possible trades intended to manipulate the coking
coal benchmark.
    "There are various factors such as China's import ban,
Russia's invasion of Ukraine, but the (coking) coal market has a
problem because there are very few transactions in the first
place," Daimon told Reuters in rare comments by a steelmaker on
buying strategy. 
    "There are apparently some transactions that try to drive up
the price," he said.
    The benchmark, S&P Global's Platts Premium Low Vol FOB
Australia, is used by the global steel industry to set prices
for term coking coal supply deals, and is assessed using spot
trades as well as bids and offers and other market indications.
    Asked about JFE's concerns, S&P defended its assessments. 
        "Platts has a zero-tolerance policy toward any attempts
to distort its assessments. We fully investigate all complaints
with stringent internal processes and sector-leading
transparency standards," S&P Global said in emailed comments.
    It said the drop in spot trading was due to declining coal
exports from Australia amid mining and operational issues, while
China was relying more on domestic production of coking coal.
        "When output falls, producers typically reduce their
allocation of spot sales in favor of maintaining supply into
term contracts," it said.
    S&P added that more steelmakers from around Asia were
reporting information to Platts.
    
    DROP IN SPOT TRADE
    Monthly spot trades for Australian hard coking coal at fixed
prices have plunged to about 400,000 metric tons from around 2
million tons since China halted Australian coking coal imports,
according to JFE.
    That accounts for less than 5% of the annual 300 million
tons of seaborne coking coal traded globally, JFE said, far
below the 30% and 15% for spot thermal coal and iron ore
volumes, respectively.
    Over the past three years, coking coal prices paid by JFE
have jumped from $110 per wet metric ton in the July-September
quarter in 2020 to as high as $526 in the April-June quarter in
2022 and $240 in the July-September quarter this year.
        To tackle what it sees as an unsound market, JFE plans
to buy more coking coal on the spot market.
        "We want to increase our spot trading as much as
possible to increase the liquidity of the market and to reflect
true demand and supply, though it's still like a drop in the
desert," Daimon said, without giving a specific volume figure.
    JFE, a unit of JFE Holdings  5411.T , began spot coking coal
purchases at fixed prices in 2022, buying about 40,000-80,000
metric tons every quarter, with an annual target of around
500,000 tons. But that is only a fraction of its total
procurement volume of 17 million tons.
    Bigger rival Nippon Steel  5401.T  also sees the lack of
spot liquidity and price transparency as challenges.
    Even with an increase in spot purchases by Indian companies,
"the issue of low liquidity and transparency remains unchanged,"
said Kichi Yamada, a Nippon Steel general manager, adding that
the company uses both spot and term purchases.
    Key coking coal producer BHP  BHP.AX  said it is the joint
responsibility of all market participants to contribute to spot
market liquidity.
    "We have been consistently selling part of our production
into the spot market and are committed to continue to do so in
the future," a BHP spokesperson said.
    

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World metallurgical coal trade    https://tmsnrt.rs/48xFzkz
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 (Reporting by Yuka Obayashi; Additional reporting by Aizhu
Chen, Muyu Xu in Singapore and Melanie Burton in Melbourne;
Editing by Florence Tan and Sonali Paul)
 ((Yuka.Obayashi@thomsonreuters.com; +813-4520-1265))